AccountingQA Latest Questions

A_Team
A_Team
In: >

  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Overview And Definition Shareholder's equity represents the net value of a company. As an accounting measure, shareholders’ equity (also referred to as stockholders’ equity) is the difference between a company’s assets and liabilities. It is also called the book value of equity. For example – retainRead more

    Overview And Definition

    Shareholder’s equity represents the net value of a company. As an accounting measure, shareholders’ equity (also referred to as stockholders’ equity) is the difference between a company’s assets and liabilities. It is also called the book value of equity.

    For example – retained earnings, common stock, etc.

     

    Liabilities

    Liabilities are the obligation or something a company or a person owes to another party. normally it is in cash form but it can be in other forms also.

    And these liabilities need to be settled as per the terms agreed upon by the party.

    For example – taxes owned, trade payables, etc.

     

    Assets

    Assets are those which has ownership of a company and controlling power with the company. In other words, Or something which will generate profits today and in the future.

    For example – cash, building, etc.

     

    Conclusion

    Therefore I can conclude that stockholders’ equity refers to the assets remaining in a business once all liabilities have been settled, or I can say as it is not the same thing as the company’s assets. Assets are what the business owns.

     

    How to Calculate Shareholders’ Equity

    Shareholders’ equity is the owner’s claim when assets are liquidated, and debts are paid up. It can be calculated using the following two formulas:

    Formula 1:

    Shareholders’ Equity = Total Assets – Total Liabilities

     

    Formula 2:

    Shareholders’ Equity = Share Capital + Retained Earnings – Treasury Stock

    Let me now take the example of a small business owner who is into the business of chairs in India.

    As per the balance sheet of the proprietorship firm for the financial year ending on March 31, YYYY, the following information is available. Determine the shareholders’ equity of the firm.

    Given, Total Assets = Net property, plant & equipment + Warehouse premises + Accounts Receivable + Inventory
    = Rs (1000,000 + 300,000 + 500,000 + 800,000)

    Total Assets = Rs 2600,000

     

    Again, Total liabilities = Net debt+ Accounts payable + Other current liabilities

    = Rs (700,000 + 700,000 + 600,000)

     

    Total Liabilities = Rs 2,000,000

    Therefore, the shareholders’ equity of the firm as on March 31, YYYY, can be calculated as,

    = Rs (2600,000 – 2,000,000)

     

    Shareholders’ Equity = Rs 600,000

    Therefore, the shareholders’ equity, as of March 31, YYYY, stood at Rs 600,000.

    See less
    • 0
Rahul_Jose
Rahul_Jose
In: >

  2. Pooja_Parikh Aspiring Chartered Accountant

    Any person, company, or organization that owes us money is a debtor. The amount that is owed to us is called debt. When you are unsure if a debtor is going to pay back the amount owed to you, then a provision for doubtful debts is created. Here, the debtor may or may not pay back the amount owed. WhRead more

    Any person, company, or organization that owes us money is a debtor. The amount that is owed to us is called debt. When you are unsure if a debtor is going to pay back the amount owed to you, then a provision for doubtful debts is created. Here, the debtor may or may not pay back the amount owed. When the debts owed to us is irrecoverable, it is termed as bad debts.

    Provision for doubtful debts may become a bad debt at some point. Usually, companies keep a small portion of their debtors as a provision for doubtful debts in accordance with the prudence concept that tells us to account for all possible losses. Provision for doubtful debts is a liability whereas bad debts are recorded as an expense.

    Journal entries for Doubtful debts and bad debts are as follows:

    EXAMPLE

    If the balance in the debtors’ account shows an amount of Rs 20,000 and 5% of debtors are treated as doubtful, then Rs 1,000 is recorded as a provision for doubtful debts. This amount is deducted from debtors in the balance sheet.

    Now if Rs 400 was recorded as actual bad debts, then it is deducted from the provision for doubtful debts instead of debtors. Further another 400 is added back to provision for doubtful debts to maintain the percentage.

    See less
    • 0
Rahul_Jose
Rahul_Jose
In: >

  2. Radhika
    This answer was edited.

    The commercial banks are required to keep a certain amount of their deposits with the central bank and the percentage of deposits that the banks are required to keep as reserves is called Cash Reserve Ratio. The banks have to keep the amount to maintain the Cash Reserve Ratio with the RBI. CRR meansRead more

    The commercial banks are required to keep a certain amount of their deposits with the central bank and the percentage of deposits that the banks are required to keep as reserves is called Cash Reserve Ratio.

    The banks have to keep the amount to maintain the Cash Reserve Ratio with the RBI.

    CRR means that commercial banks cannot lend money in the market or make investments or earn any interest on the amount below what is required to be kept in CRR.

    RBI mandates Cash Reserve Ratio so that a percentage of the bank’s deposit is kept safe with the RBI, hence, in an uncertain event bank can still fulfill its obligation against its customers.

    CRR also helps RBI to control liquidity in the economy. When CRR is kept at a higher rate, the lower the liquidity in the economy, and similarly when CRR is kept at a lower rate, there is higher liquidity in the economy.

    The Reserve Bank of India also regulates inflation through the Cash Reserve Ratio:

    • During inflation, that is when RBI wants to apply contractionary monetary policy, it increases CRR so that the money left with banks to lend is reduced. Such measures reduce the money supply in the economy and therefore help combat inflation.
    • During deflation, that is when RBI wants to apply expansionary monetary policy, it reduces CRR, so that the money left with banks to lend is increased. Such measures increase the money supply in the economy and therefore help combat deflation.

    The formula for CRR is- 

    Reserves maintained with Central Banks / Bank Deposits * 100%

    For example:

    The current CRR is 3% which means that for every Rs 100 deposit in the commercial banks have to keep Rs 3 as a deposit with RBI.

     

    See less
    • 0
Ayushi
AyushiCurious
In: >

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Bank Reconciliation Statement or BRS is a statement prepared to reconcile the bank account balance as per the cashbook with the bank balance as per the passbook. This is done so because often the bank balance as per the cashbook does not match with the bank balance as per the passbook. BRS is usuallRead more

    Bank Reconciliation Statement or BRS is a statement prepared to reconcile the bank account balance as per the cashbook with the bank balance as per the passbook. This is done so because often the bank balance as per the cashbook does not match with the bank balance as per the passbook.

    BRS is usually prepared by the accountant of an entity to find out the causes of the difference between the bank balance as per cashbook and the bank balance as reported in the passbook. The frequency of preparation of BRS is usually monthly. Nowadays, many enterprises have computerised accounting systems which help in automatic bank reconciliation.

    Sometimes, BRS is also prepared by auditors during the audit of financial statements.

    The balance of the bank account column of the cashbook does not match the bank balance as per the passbook. This is due to many transactions like the following that go unnoticed by the accountant:

    • The credit of bank interest,
    • Auto-debit of bank charges,
    • Delay in the clearing of cheques deposited, for which debit is already given by the accountant.
    • Late presentment of cheque issued by enterprise, for credit is already given by the account.

    Differences also occur due to accounting errors like posting wrong amounts in the cashbook.

    To prepare the BRS, we have to start either with the bank balance as per cashbook, then add or subtract amounts to arrive at the bank balance as per passbook. Or we can do the vice verse. Here, the amounts we add or subtract are the amounts of items that are causes for the difference between the two balances.

    See less
    • 0
Ayushi
AyushiCurious
In: >

  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and othRead more

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and other stakeholders are secured.

    MAXIMUM REMUNERATION

    As per section 197 of the Companies Act, the Company has certain limits on paying maximum remuneration, depending on whether he is working full-time or part-time. If the company has only one whole-time manager, he is entitled to a maximum remuneration of 5% of net profits. If there is more than one whole time manager, then the percentage increases to 10%.

    For part-time directors, the remuneration allowed is 1% of net profits (if there is a whole-time director present) and if no whole-time manager is present, then remuneration for a part-time director is 3%.

    Therefore, a company can only pay a maximum remuneration of 11% of net profits.

    A public company is allowed to pay remuneration in excess of 11% by :

    • Passing a special resolution approved by the shareholders
    • Subject to compliance with Schedule V conditions

    Remuneration can be paid to such managers who do not have any direct interest in the company and also possesses special knowledge and expertise along with a graduate-level qualification.

    PENALTY

    Any person who fails to comply with the provisions of managerial remuneration shall be punishable with a fine that can vary from Rs. 1 Lakh to a maximum of Rs. 5 Lakhs.

    However, Sec 197 applies to only public companies and hence private companies are free to pay managerial remuneration with no upper limit.

    See less
    • 0
Simerpreet
SimerpreetHelpful
In: >

  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Debit balance may arise due to timing differences in which case income will be accrued at the year's end to offset the debit. The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits. The account which has debit balances are aRead more

    Definition

    Debit balance may arise due to timing differences in which case income will be accrued at the year’s end to offset the debit.

    The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits.

    The account which has debit balances are as follows:

    • Assets accounts
    Land, furniture, building machinery, etc

    • Expenses accounts
    Salary, rent, insurance, etc

    • Losses
    Bad debts, loss by fire, etc

    • Drawings
    Personal drawings of cash or assets

    • Cash and bank balances
    Balances of these accounts

    In class 11th, we learned about all these accounts that have debit balances.
    Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “

    Here are some examples showing the debit balances of the accounts :

    See less
    • 6
Simerpreet
SimerpreetHelpful
In: >

  2. GautamSaxena Curious .
    This answer was edited.

    Ledger posting The process of entering all transactions from journal to ledger is called ledger posting. Each ledger account contains an individual asset, person, revenue, or expense. As we're aware the journal records all the transactions of the business. Posting to the ledger account not only helpRead more

    Ledger posting

    The process of entering all transactions from journal to ledger is called ledger posting. Each ledger account contains an individual asset, person, revenue, or expense. As we’re aware the journal records all the transactions of the business.

    Posting to the ledger account not only helps the proper maintenance of the ledger book but also helps in reflecting a permanent summary of all the journal accounts. In the end, all the accounts that are entered and operated in the ledger are closed, totaled, and balanced.

    Balancing the ledger means finding the difference between the debit and credit amounts of a particular account, it’s done on the day of closing of the accounting year. Sometimes journal entries are made and maintained monthly. Therefore, the balancing of the ledger’s date depends on the business’ closing date and the way a business maintains its books of accounts.

    Example

    Mr. Jack Sparrow decided to start a new clothing business. On 1st April 2021, He started the business with a total sum of $100,000 cash. He purchased furniture, including desks and shelves for $25,000. Mr. Sparrow then decided to start with women’s clothing and purchased a complete range of clothes from the wholesale market for $50,000. On the next day, he sold all the stock for $75,000. He also hired a worker for $5,000.

    We need to journalize these transactions and post them into the ledger account.

     

    Journal Entries

     

    Ledger Accounts

    Cash A/c

     

    Capital A/c

     

    Purchases A/c

     

    Sales A/c

     

    Salary A/c

    See less
    • 0
Aditi
Aditi
In: >

  2. Mehak

    The terms outstanding expenses and accrued expenses are two accounting terms which are often used interchangeably. However, these two terms are not the same and have different meanings. The difference between these two terms is given below: What are Outstanding expenses? As the name suggests, outstaRead more

    The terms outstanding expenses and accrued expenses are two accounting terms which are often used interchangeably. However, these two terms are not the same and have different meanings. The difference between these two terms is given below:

    What are Outstanding expenses?

    As the name suggests, outstanding expenses are the expenses that are due but have not been paid yet. It means that the business is supposed to pay the amount due but it has not paid the same at the end of the accounting period.

    Outstanding expenses are recognized as a current liability because the business is liable to pay such expenses. These expenses are recorded in the books of accounts but the payment is still pending.

    Some examples of outstanding expenses are:

    1. The electricity bill is due for the month of January but has not yet been paid on 31st January.
    2. Salaries of employees of 50,000 is due for the month of March but have not been paid yet by the business.

    What are Accrued expenses? 

    Accrued expenses are the expenses that a business has incurred during the accounting period but they have not yet been recorded in the books of accounts because the bill has not yet been received or the payment is not due yet.

    The concept of Accrued expenses helps in complying with the accrual basis of accounting which says that the expense shall be recognised at the time it occurs regardless of the fact that payment is received or not.

    Examples of accrued expenses are:

    1. The electricity bill for December is received in the month of January. However, it shall be recognised as an expense in the month of December.
    2. The salaries of the employees for the month of April are paid in May. However, this expense shall be recognized in April.

     

    Key differences between outstanding expenses and accrued expenses

    To summarise the above discussion, the key differences between outstanding expenses and accrued expenses are given in the table below:

     

    See less
    • 0
Manvi
Manvi
In: >

  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    Bad Debt is the amount that is irrecoverable from the debtors. It is the portion of the receivables. It includes two accounts “Bad Debts A/c” and “Debtors A/c or Accounts Receivable A/c”. The amount cannot be recovered by the debtor for reasons like the debtor is no longer in the position to pay offRead more

    Bad Debt is the amount that is irrecoverable from the debtors. It is the portion of the receivables. It includes two accounts “Bad Debts A/c” and “Debtors A/c or Accounts Receivable A/c”.

    The amount cannot be recovered by the debtor for reasons like the debtor is no longer in the position to pay off the debt or has become insolvent.

    There are two methods to write off bad debts:

    1. Direct Method
    2. Allowance for Doubtful Debts

     

    1. Direct Method: In this method, the amount of bad debts is directly deducted from the total receivables and the second effect is transferred to the debit side of Profit and Loss A/c as an expense.

    The journal entry for bad debts as per modern rules of accounting is as follows:

    Bad Debts A/c Debit Increase in expenses
          To Accounts Receivable A/c Credit Decrease in assets
    (Being bad debts written off )

     

    Journal entry for transferring bad debts to profit and loss account:

    Profit and Loss A/c Debit
          To Bad Debts A/c Credit
    (Being bad debts transferred to profit and loss a/c )

     

    For example, A Ltd had a total receivable of Rs.2,50,000 and bad debts for the period amounted to Rs.10,000.

    Here, the journal entries will be:

    Bad Debts A/c Debit 10,000
          To Accounts Receivable A/c Credit 10,000
    (Being bad debts written off )

     

    Profit and Loss A/c Debit 10,000
          To Bad Debts A/c Credit 10,000
    (Being bad debts transferred to profit and loss a/c )

     

     2. Allowance for Doubtful Debts:  In this method allowance is the estimation of the debts which is doubtful to be paid. The company creates a reserve for such debts which are uncollectible.

    Firstly, the company will create a reserve which will be based on the accounts receivable. The journal entry will be:

    Bad Debts A/c Debit
          To Allowance for Doubtful Debts A/c Credit
    (Being allowance for doubtful debts created)

     

    When a specific receivable is uncollectible it will be charged as an expense, and Allowance for Doubtful Debts will be “Debited” and Accounts Receivable will be “Credited”.

    Allowance for Doubtful Debts A/c Debit
                  To Accounts Receivable A/c Credit
    (Being bad debts written off)

    For example, Mr.B sold goods worth Rs.15,000 to Mr.D. He creates an allowance of Rs.15,000 in case Mr.D fails to pay the amount. At the end of the period, Mr.D defaults and does not pay the debt.

    In this case, Mr.B will first record the journal entry for allowance and then will write off Mr.D’s account.

    Bad Debts A/c 15,000
          To Allowance for Doubtful Debts A/c 15,000
    (Being allowance of Rs.10,000 created for doubtful debts)

     

    Allowance for Doubtful Debts A/c 15,000
                  To Mr.D’s A/c 15,000
    (Being Mr.D’s account written off)
    See less
    • 0

Most Helping Users

Astha

Astha

Leader
Simerpreet

Simerpreet

Helpful
AbhishekBatabyal

AbhishekBatabyal

Helpful